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  • NYDFS publishes new proposal on cybersecurity regs

    Privacy, Cyber Risk & Data Security

    On June 28, NYDFS published an updated proposed second amendment to the state’s cybersecurity regulation (23 NYCRR 500) reflecting revisions made by the department in response to comments received on proposed expanded amendments published last November. (Covered by InfoBytes here.) NYDFS’ cybersecurity regulation, effective in March 2017, imposes a series of cybersecurity requirements for banks, insurance companies, and other financial services institutions. (Covered by InfoBytes here.) Proposed changes include:

    • New and amended definitions. The proposed second amendment defines “Chief Information Security Office or CISO” to mean “a qualified individual responsible for overseeing and implementing the covered entity’s cybersecurity program and enforcing its cybersecurity policy, who has adequate authority to ensure cybersecurity risks are appropriately managed, including the ability to direct sufficient resources to implement and maintain an effective cybersecurity program.” Certain references to a CISO’s responsibilities have been moved and slightly modified throughout. The amendments also clarify that affiliates should only include “those that share information systems, cybersecurity resources or all or any part of a cybersecurity program with the covered entity” for the purposes of calculating the number of employees and gross annual revenue for consideration as a “Class A Company.” The definition of a “privileged account” has also been modified to remove a condition that an authorized user account or service account be able to affect a material change to the technical or business operations of the covered entity. Risk assessments also no longer include a requirement that a covered entity “take into account the specific circumstances of the covered entity, including but not limited to its size, staffing, governance, businesses, services, products, operations, customers, counterparties, service providers, vendors, other relations and their locations, as well as the geographies and locations of its operations and business relations.” Additionally, “senior governing body” now specifies that for “any cybersecurity program or part of a cybersecurity program adopted from an affiliate under section 500.2(d) of this Part, the senior governing body may be that of the affiliate.”
    • Notice of a cybersecurity event. Under 23 NYCRR 500, entities are required to notify NYDFS within 72 hours after a determination has been made that a cybersecurity event has occurred at a covered entity, its affiliates, or a third-party service provider. The amendments remove a 90-day period for covered entities to provide the superintendent with requested information, and instead provides that “[e]ach covered entity shall promptly provide any information requested regarding such event. Covered entities shall have a continuing obligation to update and supplement the information provided.” Covered entities will be required to maintain for examination, and now inspection by the department upon request, all records, schedules, and supporting data and documentation.
    • Exemptions. The proposed second amendment now offers that “[a]n employee, agent, wholly-owned subsidiary, representative or designee of a covered entity, who is itself a covered entity, is exempt from this Part and need not develop its own cybersecurity program to the extent that the employee, agent, wholly-owned subsidiary, representative or designee is covered by the cybersecurity program of the covered entity.”
    • Additional modifications. Other slight modifications have been made throughout that include removing a requirement that covered entities “document material issues found during testing and report them to its senior governing body and senior management,” and deleting a requirement that Class A companies use external experts to conduct risk assessments at least once every three years. The proposed second amendment makes changes to third-party service provider policy requirements and multi-factor authentication provisions and replaces a reference to a covered entity’s board of directors or equivalent with the “senior governing body.” Language defining these responsibilities has been slightly modified. Additionally, incident response plans must also now include a root cause analysis describing “how and why the event occurred, what business impact it had, and what will be done to prevent reoccurrence.” Furthermore, when assessing penalties, the superintendent may now also consider “the extent to which the relevant policies and procedures of the company are consistent with nationally recognized cybersecurity frameworks, such as NIST.”

    The proposed second amendment is subject to a 45-day comment period expiring August 14.

    Privacy, Cyber Risk & Data Security State Issues NYDFS 23 NYCRR Part 500 State Regulators

  • NYDFS circulates advisory on file transfers

    Privacy, Cyber Risk & Data Security

    On June 2, NYDFS notified all regulated entities that an identified SQL injection vulnerability found in a web application of a managed file transfer software may allow unauthenticated attackers to gain access to its database. The Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency and others circulated the advisory, which cautioned that this vulnerability is being actively exploited by threat actors to deploy ransomware, steal data, and disrupt operations. NYDFS advised all regulated entities to conduct prompt risks assessments on their organizations, customers, consumers, and third-party service providers to mitigate risk. Regulated entities were also reminded about the requirement to report cybersecurity events as promptly as possible but no later than 72 hours at the latest, and that “evidence of unauthorized access to information systems, such as webshell installation, even if there has been no malware deployed or data exfiltrated,” are considered a reportable cybersecurity event under 23 NYCRR Section 500.17(a)(2).

    Privacy, Cyber Risk & Data Security State Issues State Regulators NYDFS Department of Homeland Security 23 NYCRR Part 500 Consumer Protection Act

  • Crypto platform reaches $1.2 million settlement on alleged compliance failures

    State Issues

    On May 1, NYDFS issued a consent order against a cryptocurrency trading platform for engaging in alleged violations of the state’s cybersecurity regulation (23 NYCRR Part 500). According to the consent order, during examinations conducted in 2018 and 2020, NYDFS identified multiple alleged deficiencies in the respondent’s cybersecurity program, as required by both the cybersecurity regulation and the state’s virtual currency regulation (23 NYCRR Part 200). Following the examinations, NYDFS initiated an investigation into the respondent’s cybersecurity program. The Department concluded that the respondent failed to conduct periodic cybersecurity risk assessments “sufficient to inform the design of the cybersecurity program,” and failed to establish and maintain an effective cybersecurity program and implement a reviewed and board-approved written cybersecurity policy. Moreover, NYDFS claimed the respondent’s policies and procedures were not customized to meet the company’s needs and risks. Under the terms of the consent order, the respondent must pay a $1.2 million civil monetary penalty and submit quarterly progress reports to NYDFS detailing its remediation efforts. 

    State Issues Digital Assets Privacy, Cyber Risk & Data Security State Regulators NYDFS New York Enforcement Cryptocurrency 23 NYCRR Part 200 23 NYCRR Part 500 Virtual Currency

  • NYDFS, crypto payment company reach AML/cybersecurity settlement

    State Issues

    On March 16, NYDFS issued a consent order against a payment service provider for allegedly failing to comply with the state’s virtual currency and cybersecurity regulations. The company was licensed to engage in virtual currency business activity in the state pursuant to 23 NYCRR Part 200. Licensees under Part 200 are required to, among other things, comply with federal and state laws mandating effective controls to guard against money laundering and certain other illegal activities. A 2022 NYDFS examination revealed that, although the company made improvements to address deficiencies within its AML and cybersecurity compliance programs that were identified during a 2018 examination, the programs still required additional improvements to achieve regulatory compliance. NYDFS concluded that the company violated sections of Part 200 by allegedly failing to develop adequate internal policies and controls to maintain compliance with applicable AML laws or to develop procedures to ensure compliance with necessary risk management requirements under applicable OFAC regulations. Furthermore, the company violated the state’s cybersecurity regulation (23 NYCRR Part 500) by failing to conduct periodic cybersecurity risk assessments and failing to timely appoint a designated chief information security officer responsible for overseeing, implementing, and reporting on the company’s cybersecurity program. Under the terms of the consent order, the company agreed to pay a $1 million civil monetary penalty and submit an action plan to NYDFS within 180 days detailing its remediation efforts. The company also agreed to conduct a comprehensive cybersecurity risk assessment within 150 days and to continue to strengthen its controls, policies, and procedures to prevent future violations.

    State Issues Digital Assets Privacy, Cyber Risk & Data Security State Regulators NYDFS Anti-Money Laundering Cryptocurrency Virtual Currency Payments Fintech Settlement 23 NYCRR Part 200 23 NYCRR Part 500 OFAC Risk Management

  • NYDFS amends cybersecurity regs

    Privacy, Cyber Risk & Data Security

    On November 9, NYDFS proposed expanded amendments to the state’s cybersecurity regulation (23 NYCRR 500) to strengthen the Department’s risk-based approach for ensuring cybersecurity risk is integrated into regulated entities’ business planning, decision making, and ongoing risk management. NYDFS’ cybersecurity regulation took effect in March 2017 (covered by InfoBytes here) and imposes a series of cybersecurity requirements for banks, insurance companies, and other financial services institutions. NYDFS is proposing the new amendments via a data-driven approach to ensure regulated entities implement effective controls and best practices to protect consumers and businesses. “With cyber-attacks on the rise, it is critical that our regulation keeps pace with new threats and technology purpose-built to steal data or inflict harm,” Superintendent Adrienne A. Harris said in the announcement. “Cyber criminals go after all types of companies, big and small, across industries, which is why all of our regulated entities must comply with these standards – whether a bank, virtual currency company, or a health insurance company.”

    Some changes within the proposed amended regulation include:

    • New Obligations for Larger Companies. The proposed amended regulation adds a new subcategory of larger covered entities called “Class A companies,” which would be subject to additional security and external auditing requirements in addition to the general requirements that apply to all covered entities. This includes, among other things, a requirement to have an external audit of a Class A company’s cybersecurity program annually. Class A companies are defined as covered entities with at least $20 million in gross annual revenue in each of the last two fiscal years (generated from the business operations of a covered entity and its affiliates in New York) that have either (i) more than 2,000 employees averaged over the last two fiscal years (includes both the covered entity and all affiliates despite the location); or (ii) over $1 billion in gross annual revenue in each of the last two fiscal years (generated from all business operations of a covered entity and all of its affiliates).
    • Cybersecurity Governance. The proposed amended regulation provides several enhancements to the Part 500 governance requirements including:
      • The chief information security officer (CISO) must have adequate authority to ensure that cybersecurity risks are appropriately managed, including the ability to direct sufficient resources to implement and maintain a cybersecurity program.
      • The CISO must present an annual written report to the covered entity’s senior governing body that addresses the covered entity’s cybersecurity program as well as five topics described in the regulation and the company’s plans for remediating material inadequacies.
      • The CISO must timely report to the senior governing body material cybersecurity issues, such as updates to the covered entity’s risk assessment or major cyber events.
      • If the covered entity has a board of directors or equivalent, the board or an appropriate committee shall have sufficient expertise and knowledge (or be advised by persons with sufficient knowledge and expertise) to exercise effective oversight of cyber risk management.
    • Notice of Compliance. The annual certification of compliance must be signed by the covered entity’s highest-ranking executive and its CISO. The proposed amended regulation would allow a covered entity to choose to alternatively provide written acknowledgement that a covered entity did not fully comply with the regulation by describing the areas of noncompliance, including areas, systems, and processes that require material improvement, updating, or redesign, and a remedial plan and timeline for their implementation.
    • Requirements for Resiliency, Business Continuity, and Disaster Recovery Plans. The proposed amended regulation adds significant documentation and technical requirements for business continuity and disaster recovery plans, including: (i) designation of essential data and personnel; (ii) communication preparations; (iii) back-up facilities; and (iv) identification of necessary third parties.
    • Risk Assessments. The proposed amended regulation expands the definition of risk assessment. A covered entity’s risk assessment shall be reviewed and updated at least annually and whenever a change in the business or technology causes a material change to the covered entity’s cyber risk. Class A companies are required to use external experts to conduct a risk assessment at least once every three years.
    • Technology. The proposed amended regulation adds several significant mandatory security control requirements, including:
      • Asset Inventory: Each covered entity will be required to implement written policies and procedures to ensure a complete, accurate, and documented asset inventory.  At a minimum, the policies and procedures should include a method to track key information for each asset, including, as applicable, the owner, location, classification or sensitivity, support expiration date, and recovery time requirements.
      • Privilege Management: The proposed amended regulation introduces additional standards for privilege management, including, among other things, that covered entities must (i) limit privileged accounts to only those that are necessary and to conduct only specific functions; (ii) conduct access reviews on at least an annual basis; (iii) disable or securely configure remote access protocols; and (iv) promptly terminate access privileges for departing users.
      • Multi-Factor Authentication:  The proposed amendment expands the type of accounts and access types that require multi-factor authentication, to include all privileged accounts.
      • Vulnerability Management: Cybersecurity programs must now, through policies and procedures, explicitly address internal and external vulnerabilities, remediate issues in a timely manner, and report material issues to senior management.
    • Reporting Requirements. The proposed amended regulation contains provisions related to ransomware, including measures which would require entities to notify NYDFS within 72 hours of any unauthorized access to privileged accounts or “deployment of ransomware within a material part of the covered entity’s information system.” This timeframe also applies to cybersecurity events that occur at a third-party service provider. Entities would also be directed to provide the superintendent within 90 days of the notice of the cybersecurity event “any information requested regarding the investigation of the cybersecurity event.” Additionally, entities would also be directed to alert the Department within 24 hours of making a ransom payment. Within 30 days, entities must also explain the reasons that necessitated the ransomware payment, what alternatives to payment were considered, all diligence performed to find payment alternatives, and all diligence performed to ensure compliance with applicable OFAC rules and regulations, including federal sanctions implications.
    • Small Business Exemption. NYDFS noted in its announcement that based on industry feedback as well as the operating realities facing small businesses, it is proposing to raise the exemption threshold for small companies. If adopted, limited exemptions will be provided to covered entities with (i) fewer than 20 employees, including any of the entity’s independent contractors or its affiliates located in the state or that are responsible for the business of a covered entity; (ii) less than $5 million in gross annual revenue in each of the last three fiscal years from business operations of a covered entity and its affiliates in the state; and (iii) less than $15 million in year-end total assets, including the assets of all affiliates.

    The proposed amended regulation is subject to a 60-day comment period beginning on November 8th upon publication in the State Register. NYDFS stated it looks forward to receiving feedback on the proposed amended regulation during this comment period. As the comment period ends, NYDFS will then review received comments and either repropose a revised version or adopt the final regulation. Covered entities will have 180 days from the effective date to comply except as otherwise specified.

    See continuing InfoBytes coverage on 23 NYCRR Part 500 here.

    Privacy, Cyber Risk & Data Security Bank Regulatory Agency Rule-Making & Guidance State Issues New York NYDFS 23 NYCRR Part 500

  • NYDFS reaches $4.5 million settlement over cybersecurity violations

    State Issues

    On October 18, NYDFS announced a $4.5 million settlement with a licensed health insurance company for alleged violations of the Department’s Cybersecurity Regulation (23 NYCRR Part 500), which contributed to the exposure of consumers’ sensitive non-public information (NPI). According to NYDFS, a bad actor gained access to a shared email mailbox in 2020 via a phishing attack. This mailbox, NYDFS said, allegedly contained more than six years’ worth of consumer NPI. An NYDFS investigation found that the company allegedly, among other things, failed to implement multi-factor authentication throughout its email environment, did not limit user access privileges (thus allowing nine employees to share login credentials to the compromised mailbox), and failed to implement sufficient data retention and disposal procedures. NYDFS asserted that the cybersecurity event may have been avoided or limited in scope if these security controls had been implemented. Furthermore, the company’s alleged failure to conduct an adequate risk assessment as required by 23 NYCRR Part 500, prevented it from being able to identify the user access privilege and data disposal risks associated with the mailbox that was impacted by the phishing attack. Consequently, the company’s cybersecurity certifications for calendar years 2018 - 2021 were improper, NYDFS said.

    Under the terms of the consent order, the company is required to pay a $4.5 million civil money penalty and must conduct a comprehensive cybersecurity risk assessment of its information systems. NYDFS recognized the company’s cooperation throughout the investigation and commended its ongoing and completed remediation efforts, including “devoting significant financial and other resources to enhance its cybersecurity program” and making “changes to its policies, procedures, systems, and governance structures.”

    State Issues Bank Regulatory NYDFS New York Enforcement Privacy, Cyber Risk & Data Security 23 NYCRR Part 500

  • New York proposes new cybersecurity reporting requirements for financial institutions

    Privacy, Cyber Risk & Data Security

    Recently, NYDFS released proposed second amendments to New York’s Cybersecurity Regulation (23 NYCRR Part 500), which would, if adopted, require a financial institution’s senior officer or board of directors to approve the entity’s cybersecurity policy. Entities would also be required to disclose whether their directors have expertise in overseeing security risks or whether they rely on third-party cyber consultants. Among other things, the proposed amendments would require cybersecurity executives to provide directors timely alerts of significant cyber issues or events and provide annual reports to the board on cyber risks and defenses as well as on plans for remediating identified inadequacies. Additional requirements include: (i) multi-factor authentication for all privileged accounts (except for service accounts), as well as for “remote access to the network and enterprise and third-party applications from which nonpublic information is accessible”; (ii) limitations on asset and data retention management; (iii) training and monitoring of email to prevent unauthorized access; and (iv) incident response, business continuity, and disaster recovery plans.

    The proposed amendments also contain provisions related to ransomware, including measures which would require entities to notify NYDFS within 72 hours of any unauthorized access to privileged accounts or deployment of ransomware within a “material” part of the entity’s information system. Entities would also be directed to alert the Department within 24 hours of making a ransom payment to a hacker—similar to a ransomware payment disclosure mandate included within the “Cyber Incident Reporting for Critical Infrastructure Act of 2022” covering critical infrastructure (covered by InfoBytes here). Within 30 days, entities would also be required to explain the reasons that necessitated the ransomware payment, what alternatives to payment were considered, all diligence performed to find payment alternatives, and all diligence performed to ensure compliance with applicable OFAC rules and regulations including federal sanctions implications.

    Comments on the proposed amendments are due August 18.

    See continuing InfoBytes coverage on 23 NYCRR Part 500 here.

    Privacy, Cyber Risk & Data Security State Issues Bank Regulatory NYDFS 23 NYCRR Part 500

  • NYDFS imposes $5 million fine against cruise line for cybersecurity violations

    Privacy, Cyber Risk & Data Security

    On June 24, NYDFS announced a consent order imposing a $5 million fine against a group of Florida-based cruise lines for alleged violations of the state’s Cybersecurity Regulation (23 NYCRR Part 500). According to a Department investigation, the companies were subject to four cybersecurity incidents between 2019 and 2021 (including two ransomware attacks). The companies determined that unauthorized parties gained access to employee email accounts, and that, through a series of phishing emails, the parties were able to access email and attachments containing personal information belonging to the companies’ consumers and employees. NYDFS claimed that although the companies were aware of the first cybersecurity event in May 2019, they failed to notify the Department as required under 23 NYCRR Part 500 until April 2020. The investigation further showed that the companies allegedly failed to implement multi-factor authentication and did not provide adequate cybersecurity training for their personnel. NYDFS determined that in addition to the penalty, since the companies were licensed insurance producers in the state at the time of the cybersecurity incidents they would be required to surrender their insurance provider licenses.

    The settlement follows a $1.25 million data breach settlement reached with 45 states and the District of Columbia on June 22 (covered by InfoBytes here).

    Privacy/Cyber Risk & Data Security State Issues NYDFS State Regulators Enforcement Settlement Data Breach 23 NYCRR Part 500

  • Special Alert: NYDFS guidance on cybersecurity and virtual currency responds to events in Ukraine

    State Issues

    The New York Department of Financial Services last week issued guidance on its cybersecurity and virtual currency regulations in response to the Russian military actions in Ukraine and recently imposed sanctions. NYDFS specifically raised the specter of elevated cyber risk due to ongoing cyberattacks against Ukraine, which could spill over to other networks, as well as potential direct attacks against U.S. critical infrastructure.

    Updated cybersecurity regulation guidance

    NYDFS suggested that regulated entities with programs pursuant to its cybersecurity regulation (23 NYCRR 500) have the potential to mitigate increased cyber threats and should take the following steps:

    • Review cybersecurity programs for compliance, with particular attention to certain safeguards and core cybersecurity hygiene measures, including access control, vulnerability management, and privileged access review
    • Review, update, and test incident-response and business-continuity plans and ensure they address ransomware events
    • Review and implement practices pursuant to the June 2021 Ransomware Guidance
    • Re-evaluate plans to maintain essential services and protect critical data in the event of an extended outage or service disruption
    • Conduct a full test of backup and recovery abilities
    • Provide additional cybersecurity awareness training and reminders for all employees 

    NYDFS also advised that regulated entities should keep track of known threat actors and take extra precautions when doing business in Russia and Ukraine, including segregating Russian and Ukrainian networks. Regulated entities must report cybersecurity events that meet the criteria of 23 NYCRR 500.17(a) as promptly as possible and within 72 hours, and should also report cybersecurity events immediately to law enforcement, including the FBI and the Cybersecurity and Infrastructure Security Agency.

    Guidance in response to recent sanctions

    In the last week, the Biden administration imposed significant new sanctions targeting Russian assets, the Russian financial market, and Russian business dealings in response to Russia’s invasion of Ukraine. (See InfoBytes coverage here.) NYDFS reiterated that regulated entities should fully comply with U.S. sanctions on Russia, as well as Part 504 of its regulations regarding transaction monitoring and filtering. In order to comply with the new sanctions, NYDFS recommended that regulated entities take the following steps immediately:

    • Monitor all communications from NYDFS, the U.S. Department of the Treasury, the Office of Foreign Assets Control (OFAC), and other federal agencies on a real-time basis to keep tabs on the latest developments
    • Modify transaction monitoring and filtering programs as necessary to capture new sanctions as they are proposed
    • Monitor all transactions, particularly trade finance transactions and funds transfers, and identify and interdict transactions prohibited by U.S. sanctions.
    • Update OFAC compliance policies and procedures on a continuous basis to incorporate the recent sanctions and any new sanctions that may be imposed.

    Updated virtual currency regulation guidance

    NYDFS also cautioned that sanctioned entities may attempt to use virtual currency to evade sanctions. It said regulated entities must ensure they have “tailored policies, procedures, and processes to protect against the unique risks that virtual currency present” and are complying with the relevant state and federal laws, including the OFAC Sanctions Compliance Guidance for the Virtual Currency Industry and New York virtual currency regulation (23 NYCRR 200).  Additionally, regulated entities should monitor the effectiveness of virtual currency-specific control measures, including sanctions lists, geographic screening, geolocation tools/IP address identification and blocking capabilities, and transaction monitoring and investigative tools, including blockchain analytics tools.

    Buckley will continue to monitor the ongoing situation in Ukraine and provide updates in conjunction with significant developments.

    If you have any questions regarding the NYDFS guidance or the recent Ukraine-related sanctions against Russia, please visit our Privacy, Cyber Risk & Data Security or Bank Secrecy Act/Anti-Money Laundering & Sanctions practice pages, or contact a Buckley attorney with whom you have worked in the past.

    State Issues Financial Crimes Federal Issues NYDFS OFAC Department of Treasury OFAC Sanctions Privacy/Cyber Risk & Data Security Russia Ukraine Ukraine Invasion 23 NYCRR Part 500 Special Alerts

  • NYDFS addresses use of cyber assessment framework in risk assessment process

    Privacy, Cyber Risk & Data Security

    On December 9, NYDFS updated its FAQs regarding 23 NYCRR Part 500, which established cybersecurity requirements for banks, insurance companies, and other financial services institutions. (See InfoBytes coverage on 23 NYCRR Part 500 here.) New FAQ 41 addressed whether covered entities should use a cyber assessment framework as part of their risk assessment process as required by Sections 500.9 and 500.2(b). NYDFS clarified that while it “does not require a specific standard or framework for use in the risk assessment process," it expects covered entities “to implement a framework and methodology that best suits their risk and operations.” Commonly employed frameworks cited by NYDFS include the FFIEC Cyber Assessment Tool, the CRI Profile, and the NIST Cybersecurity Framework.

    Privacy/Cyber Risk & Data Security State Issues NYDFS State Regulators 23 NYCRR Part 500 Bank Regulatory

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